A Modern Safety Net

We need to update our social contract for the real lives of working families in a brutal economy.

The Great Recession has revealed that our social safety net--primarily established by Franklin D. Roosevelt during the Great Depression--is more hole than net. For many Americans, this is not news. Low-income families have spent decades dealing with economic insecurity and a system that provides little buffer on the way down. The current downturn has only made matters worse.

The latest unemployment numbers bear this out. For workers with the least education, the May unemployment rates jumped to 15.5 percent, up from 6.7 percent in 2007. Job seekers now average nearly 6 months without a job. Hidden behind these numbers, however, are the underemployed--those lucky enough to still have a job, but a job that is offering fewer hours than what they are willing to work. Bureau of Labor Statistics data suggest that nearly 9 million workers are in part-time positions but want full-time jobs--an increase of 4 million workers since the recession started.

This dramatic collapse of the low-wage job market takes place against the backdrop of a 10-year shift in poverty policy away from income support for the very poor and toward programs that emphasize work and supports for those who are working, often under the label "Work First." As a result, the fundamental income-support programs for those in need--unemployment insurance, cash welfare through the Temporary Assistance for Needy Families (TANF) program, and food assistance through the Supplemental Nutrition Assistance Program (SNAP, formerly food stamps)--have been off the front burner in the policy debate and are in need of reforms.

How threadbare is the net? Urban Institute researchers found that low-income programs in 2005 lifted fewer families out of deep poverty (those living at below half the official poverty line) than programs in 1995. Of the major programs, SNAP seems to be working the best in providing for basic needs. Caseload data from March shows that participation in this program has increased 28 percent since 2007. Still, a recent study shows that in 2006, the program served about two-thirds of those eligible, but rates vary widely by state: California, for example, serves only half of its eligible food-stamp population. Further, some eligible populations, like low-income seniors and individuals in working families, are less likely to be enrolled. Despite these challenges, SNAP provides an instructive model because eligibility for this program is based primarily on financial need, not tied to work or past work efforts.

TANF and unemployment insurance, on the other hand, do not seem as well suited to buffering low-income families during recessions. TANF, where the work-first principle is the most entrenched, is particularly ill-suited to helping the poorest Americans. Despite rising unemployment and increasing poverty, initial reports show that states' cash-assistance programs have remained flat or experienced only small increases in the number of people they serve in the early stages of the recession (more recent data is not yet available). Even before the economic nosedive, there were signs that the TANF program was not meeting its mission. Less than half of all eligible families receive TANF, and studies show that one in five adult recipients who left welfare is not working.

Unemployment insurance is also disconnected from the current labor market and the needs of low-wage workers. This program reportedly provides benefits to about one-third of all those unemployed and an even smaller percentage of low-wage unemployed workers. Additionally, the benefit amount participants receive is typically capped, so that the average replacement rate is under half of average earnings. While unemployment insurance was greatly enhanced through provisions by the American Recovery and Reinvestment Act (ARRA), some states are not taking advantage of these resources because of the required policy expansions tied to the federal dollars. In addition, seven states have borrowed more than $2 billion from the U.S. Treasury to cover their unemployment-insurance systems, and experts project that up to 20 states might need federal loans by the end of 2009 to cover trust-fund losses.

The combination of changes in policy, the economy, and our lives has led to a shift from a safety net that once primarily lifted the very destitute to a level somewhat higher, to one that now focuses benefits heavily on people who are employed year round. While there are advantages to that approach, it leaves the vast majority of poor people without a net when work is inconsistent or when life gets in the way of full-time employment. To fully address the realities of the low-wage labor market and the needs of low-income families, a modern safety net would take into account today's economy, in which workers tend to stay with individual employers five years instead of 40, in which nearly half of the work force is made up of women (including single parents), and in which more than a quarter of the work force is part-time, temporary, or contract workers. It would address the fact that many workers struggle to find employment that allows them to earn enough to support their families, and only one-quarter advance to jobs that move them out of their low-income status. And it would acknowledge that all of these pressures exist within a 24/7 economy that moves at a pace unimaginable to the architects of the current social safety net nearly 80 years ago.

A new safety net would also account for changes to workers' "life course," an approach touted by European researchers and policy-makers as they examine the social welfare state. European policy-makers have begun to examine their labor markets, social-security systems, and working-time regulations with the need to find, as the European Foundation for the Improvement of Living and Working Conditions notes, "a new deal combining sufficient flexibility and competitiveness of companies with higher levels of flexibility and employment/income security for workers." This would mean incorporating security systems that buffer not only economic shocks but also account for times when a person might need to exit the work force to care for a new child, to handle a disability or illness, or for learning and skill development. These transitions happen much more frequently than our systems admit.

A stronger net of programs for workers and their families could build on the systems we already have. SNAP could make jobless adults without children permanently eligible for food assistance (a temporary policy under ARRA). We could streamline the application process and coordinate SNAP with other benefit programs such as unemployment insurance to help ensure that eligible families are enrolled. Also, states could work to develop relationships with employers, both to help with outreach to working poor families and to target those experiencing layoffs.

Unemployment insurance could be updated both to address the structural inequities of the programs (including varying benefit levels from state to state) and the financing issues that have left many programs on the brink of bankruptcy. We could also greatly expand federal requirements to ensure that unemployment insurance covers part-time and temporary workers and to provide a greater benefit amount to low-wage workers. The National Employment Law Project estimates that another 500,000 workers would be eligible for unemployment insurance if all of the provisions outlined in ARRA were passed in the states.

Additionally, as unemployment--insurance expert Wayne Vroman has noted, "out of 61 nations providing unemployment compensation, only one nation finances the program by 'experience rating'"--that is, by applying a higher tax rate to businesses that have more layoffs. The goal of this rating system is to discourage layoffs and encourage companies to retrain their own work force to meet changing production needs. But this system encourages employers to deny unemployment-insurance claims lest they face increased tax liabilities. Employers contest one in four unemployment insurance claims, leaving many employees with the burden of a legal fight to access the benefits they need. A system of no-fault unemployment benefits, funded by a level and fair tax on all employers (perhaps shared with workers) would strip out these incentives and create a uniform safety net for all workers.

We should also revisit the TANF provisions that reward states for pushing people out of the program even when poverty and need are rising. Education and training should count as work activity, especially in periods of high unemployment when building skills for better jobs later makes sense. The federal government should also encourage states to provide more services to those with significant employment barriers. And penalizing states for failing to meet work participation requirements should be lifted when unemployment makes them impossible targets.

The next generation of safety-net policies will certainly need to connect workers to an improved and expanded system of education and training. This system would provide significant new and targeted investments in financial aid, particularly for part-time, certificate-oriented programs that target low-income individuals. The Workforce Investment Act (WIA), the cornerstone of our job-training system, should be retooled--funded at adequate levels and directly linked to industry needs. Additionally, given that many in need of training are also trying to keep food on the table and care for children, we need to ensure that they have financial support and child care while they are attending training.

Finally, the safety net should acknowledge that for the vast majority of workers, there will be short spells of non-work driven by personal circumstances and family needs. Five states and Puerto Rico in fact recognized early on--some as early as the 1940s--that there was a need for temporary-disability insurance programs to help support workers and their families during brief periods of illness and disability. However, since the 1960s no additional states have adopted this coverage. Recent policy innovations, though, in two states with temporary-disability insurance programs, California and New Jersey, have expanded beyond disability insurance to also address paid family leave--or wage replacement for the times when workers need to exit employment temporarily to care for a new baby or sick relative.

These two state programs have laid the groundwork for a national Family Security Insurance program. This short-term safety net could be built on the foundation of our national Social Security system, following the lead of many other industrialized nations. Specifically, a nominal tax added to current Social Security payroll taxes would provide a base of funding to support workers who need to temporarily leave the workplace--for their own short-term illness, a sick family member, or to care for a new baby. By providing 12 weeks per year, (to align with current Family and Medical Leave Act requirements), even low-income workers who are less likely to have paid time off could afford the much needed time to provide care. As in other states with temporary-disability insurance, workers would need some work history to be eligible for the program. For low-income workers, job protection must also be extended to help ensure that they can access the payments without the fear of losing their job.

Particularly in times of economic crisis, we need a safety net that supports all people: those who are unemployed but able to work, those who cannot work, and those who are currently working. There is more to do beyond these core programs, but fixing them would create an important and fundamentally new fabric for our safety net. While it is true that the Obama administration is not lacking in things to reform, the president should take his cues from another leader in a time of national crisis: Franklin Roosevelt. "It is childish to speak of recovery first and reconstruction afterward," Roosevelt said. "In the very nature of the processes of recovery we must avoid the destructive influences of the past."